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An empowered Group of Ministers (eGoM) will meet on Friday to finalise the composition of the Central Public Sector Enterprises Exchange Traded Fund.
An exchange traded fund is just like a mutual fund scheme. It tracks an index and is traded on a stock exchange. Its constituent stocks are listed and actively traded. Here investors get the benefit of constituent shares without directly owning it.
It also attracts risk-averse retail investors to the stock market. The Government proposes to give a discount, which will be another benefit to investors.
Awaits panel’s nod Once the Ministerial panel approves the proposal, a draft prospectus will be filed with the Securities and Exchange Board of India and then the fund can be launched, an official said. Although no date has been finalised, indications are that it may hit the market in February-March. It is expected to garner over Rs 3,000 crore.
The proposed fund is likely to have shares of 11 blue chips companies. ONGC will have maximum weightage and Engineers India minimum weight. The Cabinet Committee on Economic Affairs has already approved setting up of this fund. The fund will be managed by Goldman Sachs.
The fund will also help minimise market disruptions seen in public offerings of listed CPSEs. Officials feel that this will be beneficial for the Government from the pricing perspective as part of the discounts could be back-ended. It will also help fulfil the domestic investors’ appetite for an equity ETF product as they are vastly under-served vis-a-vis the foreign investor community.
Hong Kong key The tracker fund of Hong Kong is a successful example of Government ETF. In 1998, the Government purchased shares of companies to counter speculation and stabilise a falling market. A year later, the fund was launched in order to dispose of the equity portfolio acquired during the market intervention. The global ETF market is growing at the rate of over 30 per cent a year.
ETF was introduced in India in 2001 with the launch of Nifty BeES. At present, there are 33 ETF with assets under management close to Rs 11,500 crore and an investor base of 6.2 lakh. Gold ETFs dominate the ETF market in the country.
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